ADM fuels Bunge tie-up talk with expansion plans

ADM fuels Bunge tie-up talk with expansion plans

06/02/18 - 15:22 - Grain trader keen to increase South American presence where rival dominates

New York

Archer Daniels Midland has reiterated a desire to expand in South America, fuelling speculation that the grain merchant and processor might agree to acquire Bunge, a powerhouse on the continent.

Agricultural middlemen have suffered as huge global grain supplies prompt farmers to hold back crops and strengthen customers’ bargaining power. ADM on Tuesday reported a 4 per cent decline in quarterly adjusted operating profit compared with same period last year, even as the new US tax reform law flattered net income. Amid pressures, ADM has approached rival Bunge about a takeover, according to people familiar with the matter.

Executives declined to discuss the talks on an earnings call but spelt out growth plans that analysts said were consistent with a potential deal. If combined, ADM and Bunge would form a $34bn grain company rivalling Cargill, the world’s biggest agricultural trading house.

An agreement could lead to a bidding war with Swiss-based commodities group Glencore, which last year disclosed an interest in combining with Bunge.

The majority of ADM’s assets are in the US, where its 471m bushels in grain storage capacity leads the industry, according to a report by Credit Suisse. Bunge is a dominant oilseed and grain exporter in Brazil and Argentina.

Juan Luciano, ADM chief executive, said the company’s agricultural services division, which buys crops from farmers for processing or export, had expanded in Europe, a key production region.

“South America is trailing Europe in that regard, and the same in Southeast Asia. So that will continue, but very selectively,” he said. Farha Aslam, an analyst at Stephens, said: “ADM left the door open for a potential Bunge acquisition, because they highlighted the need for geographic expansion, particularly in South America and Asia.

“Of course, Bunge is very well positioned in South America in particular, and has a good representation in Asia.”

ADM has recently focused on acquiring businesses with less exposure to commodity swings and higher profit margins, or what Mr Luciano called “the right-hand side of the value chain.”

In the past year these have included Chamtor, a France-based sweetener and starch producer.

Mr Luciano said: “We don’t want to just invest to be big. We want to invest to plug holes in our value chain”. Shares of ADM rose 1.3 per cent to $41.11 in New York. Bunge, which reports results next week, gained 0.5 per cent to $81.32. ADM reported net profit of $788m, or $1.39 per share in the fourth quarter, up from $424m or $0.73 per share a year earlier. Adjusted for the tax changes and other items, earnings amounted to $0.82 per share, beating estimates by $0.11.

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